LINN Energy, LLC Delivers Strong Quarterly Results

LINN Energy, LLC (NASDAQ: LINE) and LinnCo, LLC (NASDAQ: LNCO) announced fourth-quarter and full-year results before the market opened this morning. Results were strong as LINN Energy produced $31.5 million of cash flow in excess of its distributions to investors. LinnCo also closed its deal with Berry Petroleum in the fourth quarter, which contributed to the strong results.

LINN Energy increased its average daily production by 11% to 889 MMcfe/d for the fourth quarter over the same quarter in 2012. While production included 44 MMcfe/d from Berry Petroleum, even after adjusting for that, the company still exceeded the low end of its guidance range. This was despite significant winter weather impacts on production.

LINN Energy was able to produce $202 million in distributable cash flow on the quarter. Of that amount, the company distributed $170.5 million, leaving it with cash flow in excess of its distribution totaling $31.5 million. That was well above the company's guidance range of 5%-10% in cash flow in excess of its distribution.

Looking ahead to 2014 LINN Energy expects its production to be in a range of 1,070-1,140 MMcfe/d. Given that production range as well as its current projections for commodity prices and expenses, LINN Energy expects to produce $12 million in cash flow in excess of its distribution in 2014. That should ensure that the company's distribution to investors remains strong in 2014.

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An exceptional quarter, Matt, congrats for recognizing that, way above guidance at 1.18 coverage, in spite of the weather. The press and the market are focusing on revenues and the book loss, due to GAAP accounting for derivatives.

Guidance looks flat from Q1 to FY2014. The verbage discussing Midland Wolfcamp monetization is also all over the place. It's fine to turn over every stone to unlock value, but the Pemian is the center of focus and LINN is not projecting a clear plan.

LINN is also essentially cutting capex, stating that:

"LINN's 2014 capital budget of approximately $1.6 billion represents the combined, high-graded capital budgets for both LINN and Berry assets. On a pro-forma basis, this amount represents a reduction of approximately 11 percent compared to the combined companies' 2013 capital programs of approximately $1.8 billion."

Cost savings due to Permian synergies are possibly the reason. But, a reduced capital budget, fairly flat 2H production guidance and no clear Permian plan clearly have some people unhappy. It leaves uncertainty about the direction.

Distribution guidance is also flat. FY 2014 is $961MM. Q1 is $240MM. $1MM? Where's the growth? Where's that Permian potential we were told about? The quarter may have been fine, but guidance seems really conservative for 2H 2014. That combined with fuzzy guidance on their Permian assets is probably why some folks are jumping overboard. Hopefully the call will clarify some things.

One of the the items that caught my attention was an admittedly quick cash analysis when you take into account paying distributions to new units created by the Barry Petroleum deal. A 40% increase in units that now get a distribution would put pressure on cash for distributions, which Matt implied with the drop to $12M excess from $32M. I think weak guidance combined with this pressure is overshadowing the overall 2013 performance.